Dunno? Dealing with contributions made in error [VIDEO]


I regularly get asked questions from readers through my blog on issues and strategies relating to self managed super funds, so I thought why not bring these questions to ‘life’ by starting a new regular weekly blog, “Dunno: ask a question”.

Each week I will hand-pick a reader question and respond with a video, audio (blogcast) or written response.  Look out for these each and every Thursday.  If you “dunno” an answer, don’t be afraid to ask Aaron the question!

Reader Question:

Can a deposit into a SMSF made in error be withdrawn in the next financial year without a tax penalty if both members of a fund were over sixty-five when the deposit was made and the fund was in accumulation mode? How would such a deposit be described by the auditor of the fund?

Tell us what you think about the “Dunno?” blog posts

Disclaimer

What lies ahead for SMSFs in 2013?


2013

A Happy New Year to all my readers…

With the SMSF industry growing strongly, 2013 is likely to provide one of the most challenging and competitive (yet rewarding) periods for SMSF professionals. The year ahead will require practitioners to ‘step-up to the plate’ and be ready for many of the reforms that will reshape the advice and compliance landscape – many that I see as ‘game-changing’ – not only for SMSFs, but for superannuation and financial services in general.

This year will see the culmination of Government reforms, with the introduction of many of the changes related to Future of Financial Advice (FoFA) and Stronger Super. These will have a wide-ranging impact on financial advisers, accountants and auditors, who will all be required to demonstrate increased competency as service providers within the SMSF industry.

So what else will we see in 2013?

There will be no shortage of news and changes when it comes to superannuation… here are just a few that I expect will make some noise this year:

  • With the Mid-Year Economic & Fiscal Outlook (MYEFO) announcing that the Government will amend legislation to extend the tax exemption after death when paying pensions, it is likely that we will see the finalisation of draft ruling, TR 2011/D3. This final ruling is expected to provide much-needed clarity to a range of issues related to when a pension commences and ceases.
  • Outcomes from the Inspector General of Taxation’s (IGT) review of excess contributions – the ATO’s approach to excess contributions has come under significant attack from individuals and practitioners, which has led the IGT to launch a review. This review is designed to address concerns around:
    • ECT administration, such as the timeliness, clarity and comprehensiveness of ATO advice (including where discretion is to be applied),
    • the quality of communication; and
    • the adverse impacts of the ATO’s administration on taxpayers and tax practitioners.
  • There has been a lot of recent discussion and activity around limited recourse borrowing arrangements (LRBAs), with both the ATO and ASIC having issued warnings about the correct structuring of arrangements and promoters schemes with property investing in super.  This year we are likely to see some action on bringing sections 67A & 67B into the financial consumer protection framework by making any LRBA acquisition a financial product. It is not a unanimously agreed decision within industry, but unless some action is taken, the next likely step might be to remove the ability to borrow using limited recourse arrangements altogether.

Election “super” promises or dealing with a changing landscape?

With the Labor Government having recently withdrawn from their commitment to delivering a budget surplus, this year’s Federal Budget could see the delivery of a few superannuation ‘sweeteners’ – in particular, an increase to the concessional contribution cap for those over 50. Subject to being re-elected, the Labor Government still appears committed to their concessional contribution cap extension for those 50 and over with super account balances of less than $500,000. But will there be something more to grab votes?

The opposing view to vote-grabbing was highlighted last year in a speech titled “Future Challenges: Australia’s Super System” given by Dr Martin Parkinson, Secretary to the Treasury, at ASFA’s conference (28 November 2012). Dr Parkinson shared some valuable insights about the challenges that face Australia’s superannuation system. He mentioned that the future direction of the retirement income system must be characterised by Australian’s having adequate income in their retirement, through a system that has integrity and is sustainable over the long-term.

But what does this mean for the year ahead?

The issue of adequacy will evolve in 2013, with the commencement of increases to compulsory superannuation from 9% to 12% by 2020. From 1 July 2013, a further 0.25% in compulsory superannuation (SGC) will be required to be paid on behalf of employees. With changes to compulsory super levels expected to provide up to 90% replacement income for an individual who is currently 30 years old, much of the attention now needs to focus on the management of various retirement phases and risks such as longevity. This issue has been at the forefront of discussions with the Government’s Superannuation Roundtable and will continue throughout 2013 and beyond.

Sustainability appears to be one of the Government’s greatest challenges, due to global uncertainty and an ageing population. A key question is whether the current framework for our superannuation system will be sustainable into the future. Continued budgetary pressures may put a further ‘squeeze’ on superannuation policy, rather than affording to offer some incentives in an election year. Dr Parkinson noted in his speech that “…scrutiny will be even more important to the extent that existing concessions are seen to favour some at the expense of the majority”.  Do you remember some of those recommendations in the Tax Review by Dr Ken Henry?  I don’t think we’ll see any courageous decisions in retirement policy an election year!

The growth of SMSFs certainly wasn’t lost on Dr Parkinson and will continue to be closely scrutinised by Treasury as an emerging issue of integrity for the superannuation system. It is clear that Government wish to see greater transparency on the implications of operating an SMSF, along with increased accountability requirements for SMSF trustees. The ‘stepped’ administrative penalty system to be introduced as part of the Stronger Super reforms from 1 July 2013 will certainly offer a greater level of accountability to fund trustees, as it provides the ATO with additional powers including potential mandatory training subject to the severity of the breach.

What does it all mean for SMSF professionals?

An exciting opportunity lies ahead for those who are prepared to embrace change and look to further develop their SMSF business model to attract new and existing trustees. More than ever, you will need to think about effective ways to deliver your services, content and education as many self-directed trustees continue to build knowledge through the web and social media.

I look forward to exploring these issues with you in the year ahead…

Regards,

Aaron

PS. We will also see the one millionth member of a self-managed super fund in 2013. I suspect this will happen in either the September or December quarter this year. An amazing milestone that shows the sector is flourishing!

WEBINAR: Building an Investment Strategy


The final SMSF Academy webinar for 2012 will take a look at the important elements in Building an SMSF Investment Strategy.

Join me for this one-hour session, where we will explore the:

  • Stronger Super reforms impacting a fund’s investment strategy
  • Framework for developing investment strategies
  • Implementation of investment strategies
  • Requirements to appropriately monitor and review an investment strategy; and
  • Other investment requirements

Webinar details:

  • Date: Wednesday, 12 December 2012
  • Time: 11am, AEDST

Find out more and register here

SPAA CPD points available for attendees

extra bonus

Attendees will receive a copy of the revised SMSF Investment Strategy template, which includes the latest changes from the Stronger Super reforms.

GUEST POST: Understand the state jurisdictions when establishing LRBAs


the-law

The ATO’s recent release of Taxpayer Alert – TA 2012/7, provide trustees and professionals with a timely reminder about acquisition of property using a Limited Recourse Borrowing Arrangement (LRBA) and also through related unit trusts.

Some of the examples of concern raised by the Commissioner in TA 2012/7 surrounding LRBAs suggest individuals are either:

  • oblivious to the appropriate legislative provisions; or
  • not seeking the appropriate advice prior to entering into the property acquisition.

Of most interest from the features that concern the Commissioner, was the following statement:

“The trustee of the holding trust is not in existence and the holding trust is not established at the time the contract to acquire the asset is signed” [Arrangement 1, item (c)]

Whilst this may be a true statement for some state jurisdictions, this is not necessarily the case across all States and Territories of Australia.  For example, Victoria’s conveyancing and stamp duty laws do not prohibit nor penalise parties when they incorporate and establish a Trust in contemplation of being the nominated party for a property transaction that is already on foot.  It is commonplace in Victoria for parties to be nominated to complete a property acquisition to which they were not the original party. Usually, the initial Contract of Sale provides a nomination provision. If this is not the case, there is a statutory provision that enables a nomination of the purchaser of a property in Victoria within 14 days of the date of settlement.  Any nomination is subject to the nominated party completing the transaction. If this not be the case the original purchaser is still liable to settle.

Additionally there is no stamp duty penalty if there is a nomination of a substituted purchaser that does not equate to a second sale.

The fact that the Custodial Trustee and the Bare Trust has not been established prior to the execution of the Contract for the property that is eventually acquired by the SMSF as law would be irrelevant in Victoria.

With a LRBA via nomination adhering to all of the provisions of section 67A & 67B of the SIS Act, it is difficult to determine what offends SIS or the ATO in respect of such arrangements?

The prohibition described by the ATO where the Custodial Trustee and the Bare/Holding Trust has not been established prior to the execution of the contract may in fact offend some State stamp duty provisions that would lead to double Stamp Duty.

The “lore” described by the ATO where the Custodial Trustee and the Bare Trust has not been established prior to the execution of the Contract may not be found offensive in Victoria.  I would submit that the Victorian courts would question the ATO’s motives by making such a statement.

Only time will tell, but invariably frightened parties will shy away from when a good real estate investment opportunity presents itself to a SMSF.

Written by Ian Glenister, Solicitor

Legal Officer & Co-founder, The SMSF Academy

The ASIC game-changer for SMSF auditors


The next few months starts a transformation for more than 12,000 SMSF auditors, with ASIC registration to open to become an Approved SMSF Auditor.  This registration is mandatory for all SMSF auditors to continue to conduct self managed super fund audits post 1 July 2013.

With about 50% of the SMSF auditors currently auditing 10 SMSFs or less each year, the months ahead will provide some current auditors with “food for thought” about whether they should continue to operate within the sector.  It is anticipated that a significant proportion of the existing auditors will no longer be a part of the industry from 1 July 2013.

The concerns around low-level auditors having the sufficient skills and competency to conduct an appropriate SMSF audit has been discussed and debated for some time… however, the acid-test moving forward begins from 31 January 2013, when registrations commence for the new approved auditor regime.

For those individuals auditing less than 20 funds, this will require the completion of an exam, which will pit their knowledge and judgement against key areas of undertaking an SMSF.  For those auditing 20 funds or more, a streamlined pathway is provided for registration, recognising that a minimum level of competency has been reached to conduct an SMSF audit.  Many in the industry will argue that this level is probably too low…

Regulation of SMSF auditors will see ASIC and the ATO play a dual role in managing SMSF approved auditor sector.  The ATO will continue to “police” regulation of the sector, with ASIC to maintain and enforce:

  • the independence principles of APES 110: Code of Ethics for Professional Accountants;
  • the applicable auditing and assurance standards; and
  • competency standards

ASIC has recently launched an SMSF auditors page, which provides further valuable information for fund auditors and trustees who may wish to search the register for approved SMSF auditors from 31 January 2013.

(C) The SMSF Academy 2012
%d bloggers like this: